Saturday, 22 January 2011

What will we get out of banking reform?

Sir John Vickers laid out his stall today. He has been given the task of recommending how to reform the banking system, after its "rickety structure", as he called it, was revealed during the financial crisis.
But how well will customers do out of this?
Britain's savers are helping to rescue our banks, albeit unwillingly. By putting up with paltry interest rates, they are sacrificing a decent income from their savings in order to allow the banks to sit on more cash and rebuild their balance sheets.
And Britain's current account users are unwittingly subsidising the banking system as well. The lack of competition between our few major High Street banks means that bankers can get away with high charges for overdrafts and other services.
These considerations have been set aside for the moment. Priority is being given to making sure "the system is properly resilient in the future", as Sir John Vickers explained today.
Plainly it is in the interest of customers to make sure that we don't have another banking crisis. However, Sir John's Independent Commission on Banking has also been charged with finding ways to increase competition.
He said today that he was "squarely focused" on that objective. But his focus in this speech was on shoring up the banks and protecting their retail operations in future.
By the time he comes to look at the service and returns we are all getting on our individual accounts, can we expect that much will be done? We have to hope that these niggling points aren't relegated to the afterthought section of his recommendations.
After all, the survival of our banks is a question of life and death, while competition is merely a question of their profits or ours.

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